On the Timing and Pricing of Dividends

38 Pages Posted: 16 Mar 2011 Last revised: 15 Sep 2013

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Michael W. Brandt

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: October 7, 2011

Abstract

We recover prices of dividend strips on the aggregate stock market using data from derivatives markets. The price of a k-year dividend strip is the present value of the dividend paid in k years. The value of the stock market is the sum of all dividend strip prices across maturities. We study the properties of strips and find that expected returns, Sharpe ratios, and volatilities on short-term strips are higher than on the aggregate stock market, while their CAPM betas are well below one. Short-term strip prices are more volatile than their realizations, leading to excess volatility and return predictability.

Keywords: Dividend Strips, Equity Risk Premium, Term Structure of Equity

Suggested Citation

van Binsbergen, Jules H. and Brandt, Michael W. and Koijen, Ralph S. J., On the Timing and Pricing of Dividends (October 7, 2011). AFA 2012 Chicago Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1787234 or http://dx.doi.org/10.2139/ssrn.1787234

Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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Michael W. Brandt

Duke University - Fuqua School of Business ( email )

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National Bureau of Economic Research (NBER)

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Ralph S. J. Koijen

University of Chicago - Booth School of Business ( email )

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United States

HOME PAGE: http://faculty.chicagobooth.edu/ralph.koijen/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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